Key Week for Brexit Negotiations, will this Impact AUDGBP?

AUD GBP Lower After Dismal Employment Report

This week has the potential to be a busy one for AUDGBP exchange rates, with UK based politics being the reason behind the potentially busy week.

Cabinet Office minister Michael Gove will be in Brussels today to meet with European Commission Vice President Maros Sefcovic to discuss the implementation of the Brexit divorce deal. This comes after tension between UK and EU negotiators owing to the UK government’s plans to implement an internal Brexit bill which aims to ensure smooth trade between the UK’s nations, but the EU claims is breaking international laws. There have also been a large number of MP’s that make the same claim and as it stands the EU has requested that the UK government withdraw this bill in order to move forward with negotiations regarding a Brexit deal.

Formal negotiations will begin on Tuesday so any updates regarding Michael Gove’s meeting today could also hold the potential to impact exchange rates including the AUDGBP pair.

The post Brexit trade deal talks are likely to be in focus over the next couple of weeks as both UK and EU negotiators hope to have a deal in place by the EU Summit which will take place in the middle of October. It’s crunch time for the UK because the time to request a Brexit extension elapsed in June, and if a deal isn’t in place by the EU Summit there’s a chance there could be a no-deal Brexit on the horizon. Thus far, whenever there has been talk of a no-deal being the most likely outcome from the talks the pound has weakened, and when talks of a positive trade negotiation hit the financial headlines the pound has tended to climb. Those of our readers with a currency requirement involving the pound should be aware of this pattern, especially as the next few weeks could be key for the reasons previously highlighted.

Sterling has gained on the Australian dollar recently with the pound to Australian dollar rate hitting its highest level since September the 7th this morning, trading just below 1.82 after a boost to Sterling’s value this morning. This 3-week high is the result of optimism surrounding this week’s negotiations, as over the weekend an EU spokesperson claimed that Michel Barnier is determined to reach a deal.

Bank of England’s Talk of Negative Interest Rates Also Key this Week

Aside from the ongoing trade talks this week, another topic that could potential impact the pound’s value is whether or not Bank of England policy markets continue to touch on the subject of adopting negative interest rates. At the moment interest rates within the UK sit at record low levels of 0.1% and the option of them going negative have been touched on by the Bank of England. Usually interest rate cuts tend to weaken the underlying currency, so this topic is worth following in case it becomes a reality.

Last week the Australian Dollar found itself coming under pressure for a number of reasons, which has helped the AUDGBP pair reverse some recent losses. Mid-week last week the Reserve Bank of Australia (RBA) touched on the potential of another interest rate cut down under which pushed the Aussie dollar lower. The currency had already been coming under pressure along with many other commodity currencies over fears surrounding another spike in the coronavirus pandemic, and the USD rebound has also negatively impacted the Aussie dollar.

Westpac bank has predicted that there will be an interest rate cut down to 0.1% in October and other analysts have offered similar opinions also, such as NAB bank amongst others. After initially containing the virus very well there have been outbreaks sown under and strict lockdown rules from the government have slowed the Australian economy. It’s fallen into recession this year despite avoiding a recession at the height of the financial crises over 10-years ago, so I would expect economic data released out of the country to have the potential to create market movement for the Australian Dollar.

In terms of upcoming economic data, Wednesday could be a busy time for the AUDGBP pair as there are quite a few releases of note. Chinese Manufacturing data will be released on Wednesday morning which could impact AUD rates owing to Australia and China being close trade partners. Building Permits in Australia will also be releases along with UK GDP so if you wish to be updated if there are any big market moves, do feel free to make us aware. Get in touch using the form below to do this, or to ask another question pertaining to your transfers involving Australian dollars. I’ll be happy to get in touch personally and discuss your enquiries.